Workers’ Compensation Coverage Not Preempted by Federal Drug Laws

The Supreme Court of New Hampshire, applying New Hampshire law, reversed and remanded a determination by the New Hampshire Compensation Appeals Board that an insurer cannot be ordered to reimburse an employee for his purchase of medical marijuana because such reimbursement would constitute aiding and abetting his commission of a federal crime under the Controlled Substances Act (CSA), holding instead that the CSA does not preempt an order to reimburse the employee.

Andrew Panaggio suffers from ongoing back pain as a result of a 1991 work-related injury, and he qualifies for and is registered in New Hampshire’s therapeutic cannabis program. The insurer, CNA Insurance Company (“CNA”), initially declined to reimburse Panaggio for the purchase of medical marijuana on the ground that it was not reasonable or medically necessary. After an initial appeal to the New Hampshire Department of Labor, the New Hampshire Compensation Appeals Board (“Board”) upheld CNA’s denial of coverage on the grounds that coverage would violate state and federal law, but the Supreme Court of New Hampshire concluded that there was no violation of state law and remanded so that the Board could articulate its reasoning regarding federal law.

On remand, the Board found that if the insurer were to reimburse Panaggio, it would commit a federal crime by aiding and abetting Panaggio’s illicit purchase and possession of marijuana, a Schedule 1 drug under the CSA. On Panaggio’s second appeal to the Supreme Court of New Hampshire, the insurer argued that federal preemption principles made it impossible for it to comply with both a Board order to reimburse Panaggio and the CSA, and that doing so would thwart the purposes and objectives of the CSA.

The Supreme Court of New Hampshire rejected both of the insurer’s arguments, finding that no federal preemption principles precluded the insurer from reimbursing Panaggio. The Court reviewed two types of preemption: impossibility & obstacle.

On the first, the Supreme Court found that no impossibility existed here because the insurer would not be violating the CSA in reimbursing Panaggio. The insurer had argued that reimbursement would be aiding and abetting Panaggio’s violating of the CSA. The Supreme Court found that the insurer, in complying with a Board order to reimburse Panaggio, would not have the requisite mens rea to be guilty of a CSA violation as an aider and abettor. Specifically, because the insurer would have no discretion in complying with a mandatory order, it could not have the requisite intent. Thus, because the CSA does not criminalize the act of insurance reimbursement for an employee’s purchase of medical marijuana and because the insurer does not have the requisite intent to be an accomplice or a co-conspirator to a violation of the CSA, the insurer’s compliance with both a Board order and the CSA is not an impossibility.

On the second, the Supreme Court found that the insurer’s reimbursement would not frustrate Congress’s intent to control and regulate the traffic and use of controlled substances, thus, it would not meet the “high threshold” for obstacle preemption. The Supreme Court stated that the CSA does not criminalize an insurer’s reimbursement for an employee’s purchase of medical marijuana and does not regulate insurance practices in any manner. Moreover, a Board’s order to reimburse Panaggio does not interfere with the federal government’s ability to enforce the CSA, because the federal government is free to prosecute him for simple possession of marijuana, if it chooses to.

For these reasons, the Supreme Court of New Hampshire reversed and remanded the Board’s decision, finding instead that no conflict existed between the CSA and a Board decision that an insurer must reimburse an employee’s purchase of medical marijuana. Appeal of Andrew Panaggio, 174 N.H. 89 (Mar. 2, 2021).